Simply stated, federalism is good news because we get innovation, diversity, and experimentation. States that make wise choices will be role models for their peers. And it’s also worth noting that states that screw up will provide valuable lessons as well.

But sometimes a real-world example is the most compelling evidence of all. And the news that Vermont has cancelled its proposed single-payer healthcare scheme (as predicted by Megan McArdle) shows us why federalism is such a good concept.

Let’s start by reviewing what’s happened. Here are some excerpts from a report published by the Daily Caller.

Vermont Gov. Peter Shumlin is canceling his dream plan to create a single-payer health system in the state, he announced Wednesday. …“In my judgment, now is not the right time to ask our legislature to take the step of passing a financing plan for Green Mountain Care.” The problem is, of course, how to pay for it. Even while plans were moving forward for a 2017 launch of the single-payer system, to be called Green Mountain Care, Shumlin had held off on releasing a plan for how to pay for the system, waiting until his announcement Wednesday.

Tax hikes required to pay for the system would include a 11.5 percent payroll tax as well as an additional income tax ranging all the way up to 9.5 percent. Shumlin admitted that in the current climate, such a precipitous hike would be disastrous for Vermont’s economy. …the report also admits that the single-payer system won’t save money as Vermont officials had planned. While both previous reports on Green Mountain Care had assumed “hundreds of millions of dollars” in savings in the very first year of operation, Shumlin’s office is now admitting that’s “not practical to achieve.” …Shumlin also cited slow economic recovery in Vermont as reason to delay, and hopes to try again in the future. But its failure, especially on economic grounds, is a resounding defeat for single-payer advocates.

Yes, this is a “resounding defeat” for socialized health care.

But it’s important to understand why Shumlin’s plan collapsed. He and other politicians obviously figured out (notwithstanding their claims when running for office) that a huge tax hike, combined with “free” healthcare, was a recipe for state disaster.

Productive people and businesses would have emigrated, while freeloaders and scroungers would have immigrated. The state would have gone into a downward spiral.

So even though Shumlin is a hard-core leftist, and even though Vermont’s electorate is so statist that the state came in first place in the Moocher Index, all these advocates of socialized healthcare were forced to recognize real-world constraints imposed by the existence of other states.

So the productive people of Vermont (at least the ones that haven’t already escaped) should be very thankful for federalism. Competition among the states, as well as freedom of movement between states, is a wonderful check on the greed and foolishness of the political class.

The crowd in Washington, by contrast, has more flexibility to impose bad policy since moving from one country to another is far bigger step than simply moving from, say, California to Texas.

The bottom line is that Vermont did face real-world competitive pressure. And that meant the state’s politicians didn’t think they could successfully raise enough money to finance socialist healthcare.

This reminds me of this famous Margaret Thatcher quote about other people’s money.

I’m disappointed that I couldn’t find a clip of her actually making that statement. But if you want to see the Iron Lady in action, you can click here or here.

John Carroll Jr., invented a whole category of corporate tax avoidance and successfully defended it in a fight with the Internal Revenue Service. …The first corporate “inversion,” as Carroll’s maneuver came to be known, was obscure then and is all but forgotten now. Yetat least 45 companieshave followed the lead of Carroll’s client…and shifted their legal addresses to low-tax foreign nations.…A committed liberal, he…once considered leaving the practice to work for antiwar candidate George McGovern’s 1972 presidential campaign. …McDermott’s chief financial officer at the time, says he sometimes puzzled over Carroll’s motivations. “It was always an enigma to me,” Lynott says. “We knew this guy was a Democrat, and yet he would take on the government in a New York minute over a tax issue. There was nothing liberal about his thinking as far as the tax code was concerned.” …The IRS fought the case for seven years, giving up in 1989 only after a federal appealscourt uphelda U.S Tax Court decision in the company’s favor.

30 Responses

[…] of us). Flirtation with a single-payer healthcare plan that would be such a fiscal disaster that even Vermont deep-sixed the idea. Legalizing marijuana but then imposing such onerous taxes that consumers […]

[…] nice, but people get understandably scared when they get a price tag. This is why single-payer was repealed in Bernie’s home state. And it’s why Colorado voters rejected a similar scheme by a landslide […]

[…] nice, but people get understandably scared when they get a price tag. This is why single-payer was repealed in Bernie’s home state. And it’s why Colorado voters rejected a similar scheme by a landslide […]

[…] Indeed, the only time that phrase appeared in the title of a column was back in 2014 when I smugly wrote about the collapse of government-run single-payer healthcare in Vermont. Recalling what Justice […]

[…] Indeed, the only time that phrase appeared in the title of a column was back in 2014 when I smugly wrote about the collapse of government-run single-payer healthcare in Vermont. Recalling what Justice […]

[…] Indeed, the only time that phrase appeared in the title of a column was back in 2014 when I smugly wrote about the collapse of government-run single-payer healthcare in Vermont. Recalling what Justice […]

[…] Indeed, the only time that phrase appeared in the title of a column was back in 2014 when I smugly wrote about the collapse of government-run single-payer healthcare in Vermont. Recalling what Justice […]

[…] that the solution is single-payer health care (even though that system is so dysfunctional it was repealed by Bernie Sanders’ Vermont and even though that system leads to endless horrors in the United […]

[…] that the solution is single-payer health care (even though that system is so dysfunctional it was repealed by Bernie Sanders’ Vermont and even though that system leads to endless horrors in the United […]

[…] that the solution is single-payer health care (even though that system is so dysfunctional it was repealed by Bernie Sanders’ Vermont and even though that system leads to endless horrors in the United […]

[…] that the solution is single-payer health care (even though that system is so dysfunctional it was repealed by Bernie Sanders’ Vermont and even though that system leads to endless horrors in the United […]

[…] also can minimize the cost of mistakes. When a policy error occurs in one state (for example, government-run healthcare in Vermont), it quickly becomes obvious and the damage can be contained and maybe even reversed. But when a […]

[…] going to confess a possible mistake. I always thought that Margaret Thatcher was right when she warned that the problem with socialism is that you eventually run out of other people’s money. But […]

[…] going to confess a possible mistake. I always thought that Margaret Thatcher was right when she warned that the problem with socialism is that you eventually run out of other people’s money. But […]

The demise of federalism began with the imposition of the individual income tax. That is why our founding fathers did not include federal taxation of individuals in the original constitution. The unbridled power of federal taxation continues today and with it we see a corresponding diminution of the power of the states.

Under federalism, the rights of the states were subdued in favor of a centralized and powerful federal government (citing the “Civil War” as a prime example). Reversing the destructive course of events that followed that war would go a long way to restoring the rights of the states (and further improve upon the protection of the individual’s rights). Thomas Jefferson was more concerned with the individual citizen’s rights being first and foremost under his idea of “rugged individualism” and the governments (of the federal and state) not interfering with the citizen’s due exercise of those rights.

“Federalism” is what started our nation’s downward trend towards the despotic system we have today.

[…] John Carroll Jr., invented a whole category of corporate tax avoidance and successfully defended it in a fight with the Internal Revenue Service. …The first corporate “inversion,” as Carroll’s maneuver came to be known, was obscure then and is all but forgotten now. Yet at least 45 companies have followed the lead of Carroll’s client…and shifted their legal addresses to low-tax foreign nations. …A committed liberal, he…once WAIT, THERE’S MORE… […]